Shoppers are losing out because Mastercard fees are "too high", the UK's trading watchdog has said.

Virtually all consumers will face higher retail prices as a result

Office of Fair Trading

The Office of Fair Trading said retailers were having to pay an "unjustifiably high fee" to card-issuing banks for Mastercard transactions and were passing this cost on to consumers through higher prices.

The watchdog said it proposed to find that the agreement between Mastercard and its member banks infringed anti-trust rules.

Mastercard must now answer the charges; otherwise it could face infringement proceedings.

'Like a tax'

In 2001, purchases in the UK paid for using credit and charge cards were worth £94bn, with £30bn spent using Mastercard branded cards, according to figures cited by the OFT.

The OFT said the fees acted like a "tax on retail transactions that is paid by all consumers in shops that accept credit cards", resulting in higher retail prices for UK consumers.

"Certain cardholders may benefit to some extent from the revenues generated, but virtually all consumers will face higher retail prices as a result."

The investigation by the OFT followed a complaint in September 2000 by the British Retail Consortium (BRC).

The consortium welcomed the OFT announcement.

Mark Bradshaw, deputy director general of the BRC, commenting on the report said the OFT had "got it right" by concluding the fee was a "tax on retail transactions.

"The OFT must be firm in pressing for a more flexible and transparent credit card market," he added.

However, in response Paul Lucraft MasterCard¿s Northern Europe general manager said that lower charges could lead to poorer quality service.

"Reducing or removing interchange raises the prospect of credit card protections and benefits disappearing...banks will be forced to recover costs elsewhere and some issuers may withdraw from the market."